Colombia Swap Rates Surge as Bank Holds Rate Steady; Peso Rises

Colombia’s swap rates rose the most
since October on speculation the central bank won’t cut
borrowing costs further after last week’s decision to hold the
target lending rate steady.

Banco de la Republica left the target lending rate at 3.25
percent on April 26, refraining from lowering the benchmark for
the first time in six months. Twelve of 31 analysts surveyed by
Bloomberg had predicted a reduction to 3 percent. Policy makers
have decreased borrowing costs two percentage points since they
began to cut them in July.

Three-month swap rates climbed nine basis points, or 0.09
percentage point, to 3.07 percent at 9:52 a.m. in Bogota,
according to data compiled by Bloomberg. The increase was the
biggest on a closing basis since Oct. 1, the first trading day
after policy makers cited higher-than-forecast growth and left
the target lending rate unchanged on Sept. 28. The yield on
benchmark government peso bonds due in July 2024 rose five basis
points to 4.90 percent today.

“This looks like a confirmation we’ve reached the end” of
the easing cycle, said Camilo Perez, the head analyst at Banco
de Bogota SA (BOGOTA), the nation’s biggest bank. “Many had been betting
on more than one cut.”

The peso appreciated 0.3 percent to 1,828.60 per U.S.
dollar, paring its drop in April to 0.2 percent and its slide
this year to 3.4 percent.

The central bank didn’t announce an extension of its dollar
purchase program to contain the peso as forecast by analysts
including Perez and Eduardo Suarez, a senior foreign-exchange
strategist at Bank of Nova Scotia.

Banco de la Republica said Jan. 28 it will buy a minimum of
$30 million a day, increasing purchases in the currency market
to at least $3 billion from February to May.